Biotech Values

[DewDiligence]

Re: Dead cat bounce

>>Just curious if anyone has adopted a strategy of successfully playing failure bounces...<<

I’ve had only one major clinical-trial blowup: it was with TTP when their partner, NVS, decided to pull the plug on the schizophrenia drug, Iloperidone, on account of QTc-prolongation.

Sometimes a debacle like this is just bad luck but, surprisingly often, there are warning signs.

In the case of TTP, a warning sign was a subtle change in language in the company’s 10K report. In TTP’s 2000 10K, the narrative said that Iloperidone had an “excellent safety profile” in all respects including cardio safety. In the corresponding passage in the 2001 10K, the narrative said that Iloperidone had a “very good safety profile” and omitted any mention of cardio safety.

Pretty clear, eh? It should have been clear, but I chose to ignore the signal because TTP was so cheap I rationalized that the stock wouldn’t fall much even if the drug bombed. Dumb move!

I understand how tempting it is to try to recoup some of your losses from a dead cat bounce. However, it may be more productive to direct the effort you would put into playing the bounce toward looking for warning signs you may have missed for the other stocks in your portfolio.